By George W. Thompson
Gentle Readers, can you tolerate yet another article about AD/CVD scope interpretation? A recent U.S. Court of International Trade decision, Bell Supply Company, LLC v. United States, has rejected the Commerce Department’s methodology for determining when third-country goods containing unfinished merchandise from a country covered by an AD or CVD order are themselves covered as well. The decision’s impact on other cases remains to be seen.
The case involves the AD/CVD orders on Oil Country Tubular Goods (OCTG) from China. Per usual, these provide a description of the covered merchandise, stating that the definition includes such items “whether finished . . . or unfinished (including green tubes).” The petitioning domestic industry thereafter obtained a Commerce Department scope determination that Chinese green tubes fabricated into finished products in third countries are covered. The rationale was that the third-country operations did not constitute a substantial transformation of the Chinese products, so they remained covered by the orders.
An importer of OCTG made of “Chinese green tubes later heat treated and finished in Indonesia” challenged that outcome in the CIT. The court rejected Commerce’s methodology. The error it found was Commerce’s application of a substantial transformation analysis without having first considered whether the scope language described OCTG finished in Indonesia. The court remanded the determination to Commerce to identify where the scope language identified such items.
The remand determination again found the third-country tubes are included, reasoning that since unfinished Chinese tubes were covered, the maintained that status when finished in third countries.
Sorry, Commerce, Try Again
The CIT did not accept that outcome. Noting that AD/CVD orders were limited by both the descriptive product language and country of origin, it stated that Commerce’s analysis “begs the question of whether OCTG finished in a third country using Chinese green tubes is covered by the scope of the Orders in the first place.”
The fact that unfinished OCTG from China was coved did not necessarily mean that finished OCTG from elsewhere that incorporates that Chinese product was covered as well. In the court’s view, “The scope language makes no mention of whether green tubes manufactured in China remain subject to the Orders even if the green tubes undergo further processing in a third country. Commerce has not identified any specific language from the Orders that supports such a broad reading of the scope.”
To address this error, the CIT again remanded the case to Commerce to evaluate whether the scope language and other interpretive materials (such as the AD/CVD petition and International Trade Commission’s product discussion) indicated that OCTG finished in a third country is covered. If those sources did not provide the answer, Commerce was then to apply the “Diversified factors” set forth in
19 C.F.R. § 351.225(k)(2). Unless this inquiry could demonstrate the products were covered, they were to be considered outside the scope.
Potential Disruption to Other Orders?
I have to admit my growing fondness for the Bell Supply decision. Many AD/CVD orders cover the described merchandise whether finished or unfinished. It is fairly common for finishing to take place in a third country, whether for bona fide business reasons or as an evasion technique. The general view has always been that those third-country products are covered, since their unfinished inputs are, unless a substantial transformation takes place. Bell Supply requires that such coverage must, in fact, found in the terms of an order.
Will Bell Supply result in similar challenges in other cases? That’s hard to predict, since each AD/CVD order has different scope language, but it would not surprise me. I do expect that future petitions will define the scope to encompass third-country products made with in-scope material inputs, to avoid the possible gap in coverage identified in Bell Supply.
